Moscow: Russian Copper Company (RCC) and Chinese firms have avoided taxes and skirted the impact of Western sanctions by trading in new copper wire rod disguised as scrap, three sources familiar with the matter told Reuters.
Copper wire rod was shredded in the remote Xinjiang Uyghur region by an intermediary to make it hard to distinguish from scrap, the sources said, allowing both exporters and importers to profit from differences in tariffs applied to scrap and new metal, the sources said.
Russia’s export duty on copper rod was 7 per cent in December, lower than the 10 per cent levy on scrap. Imports of copper rod into China are taxed at 4 per cent, and there is no duty on Russian scrap imports.
The sales of new metal disguised as scrap, which started in December, are reflected in a discrepancy between Chinese and Russian data.
Chinese customs data showed China has bought significantly more copper scrap from Russia since December, while Russian figures Reuters obtained from a commercial data provider showed the amount of scrap exported to the country’s biggest trade partner was negligible.
In response to a Reuters’ inquiry on the discrepancy, Russian customs said: “The Federal customs service temporarily does not provide data on foreign trade.” It stopped publishing trade data in April 2022 shortly after Russia’s invasion of Ukraine. Since then, the market has relied on commercial providers.
Asked about the trade in copper rod to Chinese firms, RCC, which is subject to Western sanctions, said that it supplies products only to Russian companies. It did not comment further.
China’s customs in Xinjiang, which borders Russia, did not respond to an emailed inquiry and a telephone call.
China has become a major destination for Russian companies seeking to export their commodities after the United States imposed sanctions on Russia for its invasion of Ukraine in February 2022.
The United States and the European Union have imposed sanctions on Chinese companies for supporting Russia’s war effort in Ukraine.
Shredding newly-made copper wire rod is an effective way to disguise new material that looks very different to scrap.
The new, high-purity copper long, thin rods, mainly used for making power cables, are typically coiled for ease of transport.
Copper scrap, by contrast, is a mix of wires, tubes and pipes that have already been used. They are chopped into grain-sized pieces or coiled and pressed, like packs of noodles, for transport.
The shredding had escaped notice as China has restricted access to the Xinjiang region in response to international condemnation of Uyghur repression, the sources said.
Apart from the financial incentive of avoiding taxes, the shredded metal is harder to identify and trace - making it easier to sell to Chinese
manufacturers.